Oneida City Hospital

G S I Y E D STATES OF AMERICA
FEDERAL TRADE COMMISSION
U'ASMINGTON, D C. 20580
June 1, $992
L i n u e 	W e WaLtsn, 	Esq.
C i t y Attorney
C i t y o f 	Oneida Department 	of Law
2 3 3 	Cedar Street
Oneida, 	NV 	13421
Dear Mr- Waleon:
This letter r e s p n d s 	to y o u r 	rewest 	for an a d v l s s q 	opinion
concerning the applicability of the Robinson-Paman 	A c t 	to t h e
sale of prescription dnasgas by 	the city-oprated 	Oneida C i t y
Hospital Lo C i t y of 	Oneida employees at a price refleeting
diecounts received by 	t h e hospital, 	As we explained to you 	An
our telephone conversation on May 	S F your 	Letter raises 	st leset
o n e p e s t i o n 	that is not clearly resolved by current au%AorAt8es,
However, w e believe t h a t 	if t h e City Hospital were to pursue t h e
proposed course o f 	action, 	it would not 	b able to invoke the
Nsn-Profit Inetitutions Act exemption from the Robinson-Patman
Act 	( " t h e A c t " ) 	and would sehemise b subject to the
rewiremenla of the A c t , 	We do not 	address the separate c?yc\estLsn
@ 	of whether, assuming that rhe A c t 	applied, procuring drugs at a
discount 	for 	resale to city employees would violate 	it*
You 	ask three s p c i f i c questions. 	One i a whether 	%he City
is exempt from t h e Robinson-Patman 	A c t as a gover 	neal @R$$~Y*
Y o u also ask whether t h e Non-Profit 	Lnatitutions 	"to t h e Act 	would cover t h e C i t y Hospital" 	dcf8spnclfngl to elty of
Oneida employees who do not work at the hospital. 	Your third
westion 	caneems whether t h e City Hospital i i ~a mn-profit
institution under 	the Mion-Profit 	I n s t i t u t i o n s A c t , 	A8 we brave
discussed, t h i s 	letter does not discuss ysux third p e s t i o n
b c a u s e 	t h e answer .&at h e 	second westion makes kt 	t.
W e Mlieve we can confidently answer %Ire first q e s t i o w in
160 U D S o
neon-Patman A c t 	applies to %he 	sale of pbamaceu%lea2
U G L ~LO state or local govermene hospitals for =sale 	in
e o m p t i t i o n w i t h 	private 	phamaeies, 	a s s u i n g these act%vLtbes
are n o t 	exempt under the Eiion-Profi% Institutions Act,

The Non-Profit Institutions Wet, 	S e c t i o n 	13c of 	t h e
Robinson-Paman 	A c t , 	stares :
Nothing 	in [ t h e A c t ) 	shall apply 	to purchases 	o f 	t h e i r
eupplies for their own use By schools, colleges,
univereities, public 	libraries, churches, 	hospitals, and
charitable institutions n o t 	operated 	for prafit.
S i n c e the C i t y Hospital 	is genesally subject 	ts t h e A c t , 	any
poesible exemption would depend on, among other things, whether
t h e purchase of drugs 	f s t 	resale to c i t y employees not employed
by C i t y Hospital amounts 	to a purchase 	for t h e 	hospital" 	%i"awn
u s e . " 	&CIP 	view 	is that t h i s 	a c t i v i t y would n o t 	qualify as 	"own
u s e *"
47 LIEd,Zd 537 	(1976). 	In that case, dmg manufacturers w e r e
selling phamaeeutieals more cheaply to certain private, non-
profit hospitals than to retail phamacies, 	The plaintiff, 	an
assoeiatfon of retail phamacists, 	complained that these
purchases violated 	the Robinson-Patman A c t 	b e a u s e 	t h e hospitals
were reselling some of t h e drugs 	at a profit to out-patieate and
others %or off-premises use, 	The Supreme Court 	suggested that i n
order 	to d e t e r n i n e what constitutes a hospital" 	own use, we
should foeus on t h e 	f u n c t i o n pmfomed 	by-the 	institution i n 	its
purchase and resale role:
"Their own use" Is what 	reasonably may 	Be regarded as
use 	i n t h e 	sense t h a t 	such us8 .is a
part of and promotes the hospital% sintended
institutional operation i n the care of 	p r s a n s who are
its patients. 	(emphasis i n t h e original).
42%U.S. 	at 14, 	The Court 	proceeded 	to conclude that certain
categories sf sales of 	as mounted to sales for the hospital's
"OWA use'' and were exem 	These were sales to in-patients,
emergency Boom patients, 	out-patients 	fos u s e on hospital
premises, in-patients and out-patients f s s t a b hame use,
hospital 	employee@ and mdical 	students for theis use or use by
t h e i r d e p n d e n t s , 	and sales to t h e hospital" 	s d % c a lstaff %or
t h e i n p r e s n a l use or use by t h e i r d e p n d e n t a , 	The Court
d e c l i n d to exempt sales of prescription refills, sales La the
hospieal" 	mdieal, staff 	bar: resale 	Ln pr6wake prcael;ictil, 	anad
rraLes 	es walk-in customers who wexe no 	fng treated at t h e
IrosgLtal. 	The parebase and resale of 	s to out-pat&@*@ and
to hospital 	p r s o n n e l 	f o r their p r e o n a l 	use were exmpt &cause
these transactions were a continuation of the Irospllal" 	&basic
Institutional f u n c t i o n , 	On the other hand, 	the =re 	refiLllng of
prescriptions 	f o r 	fomer patients, or the sale to employees o f

7 	t
I I h 	E
* drugs 	to be used by 	"on-dependent 	t:iifd 	persons, 	was h e l d 	to be
beyond 	&he protection of t h e 	statute, 	Your letter 	indicates
how 	that, s i n c e sales by 	t h e hospital to its employees were
specifically exempt i n 	sales by t h e
Oneida C i t y 	Hospital 	to c i t y employees would also be exempt,
know of 	no authority that more 	specifically 	addresses t h e
daeue of 	"own use" as 	it applies to a noneprofit institution's
employees, 	However, 	it may b 	u s e f u l 	to hook 	at decisions that
deal w i t h 	sales to other p r s o n s who 	have a particular conneetion
w i t h 	the institution in westion, 	I n an FTC a d v i s a q opinion
dated 	J u l y 	19, 	1978, 	t h e Comission 	advised a g e r o n t o l o ~
foundation that its propsed 	course of action would not qualify
f o r Nsn-Profit 	Institutions A c t exemption from Robinson-Patman.
The question h f o r e t h e Comiseion was whether t h e Foundation %or
Later Life E n n i c h e n t , 	a asn-profit foundation created to fund
gesantslom 	research and to provide goods and semiees to the
age8 ~t 	low coat, could resell donated 	pnobi"uc&s and products
obtained at wholesale prices to the elderly. 	I n 	its advisoq
opinion, t h e Csmiea%on interpreted t h e
", 	(emphasis added). 	The
ComlssLon went 	on to state thet Le did not view t h e purchase of
products 	for 	resale 	to the elderly 	"as in any manner 	a f u n c t i o n
integral to t h e operaFion, institutionally, of a gerontological.
research 	foundation." 	Additionally, 	it has been h e l d 	t h a t
purchases by 	an HnO for resale to its plan members were exempt
from t h e A c t 	as purchases for t h e 	own use,
When we consider t h e s e authorities together 	with the
i n d o m a t i o n we have 	u't 	t h e sole of 	the City Hospital, we
conclude t h a t 	the hospital" 	ppropsed 	course sf conduet cannot
meet 	t h e 	" o m use" test, 	As we understand it, the City Hospital
f u n c t i o n s 	l i k e any othem c~csneralpu 	se hospital. 	We 	f u r t h e r
understand 	t h a t 	t h e hospital and ei 	a h i a i s l r a t i o n s are not
closely linked, and eRaL t h c 	h o s p i t a l 	owrates as a separate
entity, 	The basic 	institutional function of
differ from that of 	the hospitals in
or most general p u r p s e hospitals,
the resale of prescription 	drugs to c i t y employees who have no
1. 3 E l KinLner 	& J. Baues, Federal A n t i t m s t 	Law, S %5.9# p.
168 $1983).
2 9 2 	FTC 	1819, 1020.

direct 	relationship to t h e 	hospital. 	Consequently, purchases for
resale g o c i t y employees n o t 	employed by 	the hospital 	would not
constitute purchases 	foe t h e City Hospital" 	sown use that are
exempt 	u n d e r 	t h e Non-Profit 	Xnstitutione A c t .
W e hope this opinion letter 	Is helpful to you, 	It is
limited 	to the rewest 	described above, as explained In your
letter of 	P e b r u a q 27, 	199% and in our May 5 telephone
conversation, 	It does not 	constitute approval for actions 	t h a t
are different 	from those described, or that are n o t 	s p c b f i e d 	in
your letter,
The a b v e advice i s an infoman 	stafe opinion. 	Under
Comission" 	Rule of 	Practice 	%,3(c), 	the Comission 	is not
bound by this advice and resemes the right to rescind it at a
later time* 	In addition, this office retain8 t h e right eo
reconsider t h e westion 	involved and, with notice to t h e
r e v e s t i n g party, 	to rescind or revoke 	its opinion if t h e 	rewest
is used 	for 	inpropm puqosee, 	or if 	i t would b in t h e public
interest to do so.
S i n c e r e l y yours, 	-s
Michael 	D. 	McNeely
Assistant Director
Bureau of Competition